Raising funds through private equity and internal accruals are the two visible funding models increasingly opted by the Indian biotech companies currently. Although the funding biotech ventures are encouraging today as compared to earlier years, venture capital is still hard to come by.

Companies prefer raising capital through private equity, stated Dr KK Narayanan, president, Association of Biotechnology Led Entrepreneurs (ABLE) and managing director, Metahelix Life Sciences Private Limited.

Of the funding options for seed money or growth capital, venture capital((APIDC, Kotak, India Life Science Fund, Evolvence and ICICI Ventures), private equity, banks, financial institutions and government assistance schemes like NIMITLI and SBIRI also are available to the biotech entrepreneurs. But the venture capital continues to be a small component of the Rs 2,000 crore funding in 2006 for lifesciences sector. Many companies have also been able to generate capital through internal accruals. Another option has been through partnerships with either a merger or acquisition to raise their valuations.

Current scenario indicates that it is still the large companies usually get funds, while small-medium enterprises continue to grapple for recognition from the investor community. Venture funding today is hard to get. Most investment banks and investment institutions are into private equity, stated Kiran Mazumdar-Shaw, founder-president, ABLE and CMD, Biocon Limited.

Venture capitalists look at the track record of existing companies and the viability of revenue generation in start-up models. However, going by the opportunities VCs have created a separate pool of finance for the lifesciences sector to capitalize the situation and invest in phases, stated Nitin Deshmukh, member executive council, ABLE and head, private equity, Kotak Investment Advisors Limited.

According to Sarath Naru, managing director, APIDC-VCL (Andhra Pradesh Industrial Development Corporation Venture Capital Ltd), there will be opportunities to fund because biotech sector in the US is now focusing on bio-generic drugs. This will provide scope for Indian companies to enter the business and look out for capital to set the business going.

The Indian biotech sector valued at over US $2 billion with 70 per cent from the pharma contribution is registering 38 percent growth. Compared to India, VCs in the US are having a good time. Already $2.5 billion have been offered by the VCs in Q1 of 2007 and they are gearing up to fund $12 billion for biotech investments by the year end.

In the last five years, the number of companies funded in the US remains the same but the size of investments have gone up. Existing entities are getting the funding which makes the valuation higher. But investments in the R&D and new drug developments are less than half. There is a clear paradigm shift where discovery and innovation is more towards small value products to generate maximum revenue or mileage for the buck. This is where Indian biotech companies can do well in the area of outsourcing. Therefore, India needs to strengthen its regulatory mechanism, infrastructure and offer attractive funding models to gear up and capitalize the opportunity on hand, stated Dr Narayanan.